SKN | BNP Paribas Sees Japan Interest Rates Climbing to 2.5% by 2028

Key Points

• BNP Paribas has raised its forecast for Japan’s terminal interest rate to 2.5%, reflecting expectations that the Bank of Japan will continue gradually tightening monetary policy over the next several years.
• The bank expects the Bank of Japan’s policy rate to reach 1.25% by the end of 2026, 2.00% by the end of 2027, before peaking at 2.50% in September 2028.
• Persistent inflationary pressures and continued weakness in the Japanese yen are expected to support additional rate hikes, keeping inflation above the central bank’s 2% target.

BNP Paribas has become more optimistic about the trajectory of Japanese interest rates, raising its forecast for the Bank of Japan’s terminal policy rate from 2.00% to 2.50% as inflation and currency pressures continue reshaping the country’s monetary policy outlook.

The revised forecast signals growing confidence that Japan’s era of ultra-low interest rates will continue giving way to a more normalized policy environment over the coming years.

Gradual Tightening Expected

According to BNP Paribas economist Ryutaro Kono, the Bank of Japan is expected to maintain a measured pace of policy normalization by raising interest rates approximately once every four to five months.

Under the bank’s updated projections, Japan’s policy rate is expected to rise to 1.25% by the end of 2026 before increasing further to 2.00% by the close of 2027.

BNP Paribas now expects the tightening cycle to conclude in September 2028, when the benchmark rate reaches its new projected terminal level of 2.50%.

Inflation Remains Above Target

The bank believes persistent weakness in the Japanese yen will continue placing upward pressure on import prices, helping keep inflation above the Bank of Japan’s long-standing 2% target.

A weaker currency raises the cost of imported goods, energy, and raw materials, contributing to broader price increases across the economy.

This inflation backdrop is expected to provide policymakers with additional justification for maintaining a gradual path toward higher interest rates.

Policy Outlook Remains Supportive

BNP Paribas also suggested that Japan’s political environment is unlikely to significantly disrupt the central bank’s normalization plans.

According to the bank, the current administration is expected to continue broadly accepting additional interest rate increases as policymakers seek to balance inflation control with sustainable economic growth.

That policy stance could provide the Bank of Japan with greater flexibility as it gradually exits years of exceptionally accommodative monetary policy.

Market Implications

Higher Japanese interest rates could have broad implications across global financial markets.

Rising domestic yields may encourage greater capital investment within Japan, influence foreign exchange markets, and affect funding costs for corporations and financial institutions that have benefited from historically low borrowing rates.

Investors will continue monitoring future Bank of Japan meetings for signs that policymakers remain on track with the gradual tightening path outlined by BNP Paribas.

Japan’s evolving monetary policy represents one of the most closely watched shifts among major central banks. If inflation remains resilient and the yen stays under pressure, BNP Paribas believes the Bank of Japan could continue steadily raising rates toward its newly projected 2.50% terminal level, marking a historic departure from decades of ultra-loose monetary policy.

For a confidential discussion regarding your cross-border banking structure, real estate allocation strategy, or global income portfolio design, contact our senior advisory team.